Oct 8, 2025

Welcome back to Dry Powder, I’m Bill Cohan.

As you know, Wall Street’s favorite parlor game these days involves speculating about when—or if—Paramount Skydance’s bid for all of Warner Bros. Discovery will materialize, even though the potential offer was leaked to the Journal weeks ago. In today’s issue, a closer look at a recent report from esteemed analyst Jessica Reif Ehrlich, who makes the case that David Zaslav ought to stick with his original breakup plan. But first…

Verizon’s surprise C.E.O. shake-up: The succession process is often fraught, for all the obvious reasons. Most recently, of course, there was the whole Murdoch soap opera, which concluded with Rupert passing down the family jewels to his son Lachlan, while paying $3.3 billion to make his other grown children go away. And then there was the bizarre and still mostly unexplained C.E.O. succession drama that unfolded Monday at Verizon, the stolid and highly predictable phone company. Out of the blue, longtime C.E.O. Hans Vestberg was replaced effective immediately by Dan Schulman, the lead independent director on the Verizon board and a former C.E.O. of PayPal.It’s fairly unusual for a board’s lead independent director to abruptly take over as C.E.O., Dick Cheney–style. In the Verizon press release, Schulman, 67, gave what is normally a throwaway comment—the company will “redefine our trajectory, by growing our market share across all segments”—but not for a slowish-growing telecom. How exactly is the wireless and internet behemoth going to grow its market share “across all segments,” when most of those “segments” are already quite saturated? I guess that will be Schulman’s mission, along with overseeing the completion of Verizon’s $20 billion acquisition of Frontier Communications, which will theoretically expand the company’s fiber-optic footprint. I’ve known Dan for more than 25 years. In the early 2000s, I was working as an M&A banker at JPMorgan Chase and he was C.E.O. of Virgin Mobile, a Richard Branson–branded M.V.N.O., or mobile virtual network operator—a wireless phone company that rents its network capacity from other operators. We worked together to try to take Virgin Mobile public, or to sell it. Eventually, Sprint bought it for roughly $700 million, including debt. (Sprint is now T-Mobile.) Wall Street analysts were left scratching their heads by the news that Schulman would replace Vestberg, who will remain on the Verizon board through the end of his term and serve as a “special advisor” to the company for the next year. Peter Supino at Wolfe Research put out a special bulletin wondering whether the change was “sudden,” before answering his own question. After all, third-quarter earnings were delayed, and the change was rendered “effective immediately.” As Supino concluded: “The process was not orderly.” Supino further argued that Vestberg had “left Verizon diminished” and “not decisively the best network, the convergence leader, the best price, nor the best place to get the biggest phone discount.” He hoped for “bolder ideas for Verizon” from Schulman and his team. Meanwhile, Kutgun Maral, an analyst at Evercore ISI, wrote Monday that the “unexpected announcement” has “created some uncertainty across the wireless industry.” He suggested that Schulman needs to “reimagine Verizon’s growth algorithm.” Whatever went down, it happened so fast that the company hasn’t even finalized its compensation arrangement with Schulman. “Mr. Schulman’s compensation for his service as Chief Executive Officer will be determined at a future date and will be disclosed on an amendment to this Form 8-K,” the company said in a filing with the S.E.C. Yet another head-scratcher.
An NYSE mystery: One of my faithful correspondents—a trader on the floor of an exchange—recently called my attention to an obscure Canadian mining company, Trilogy Metals Inc., which trades on the NYSE under the symbol TMQ and owns a 50 percent interest in projects in Alaska’s Ambler Mining District. Late Monday, the U.S. government announced a $35.6 million investment in TMQ in exchange for a 10 percent stake in the company, plus warrants.Apparently, the thesis was to help the company exploit opportunities in Alaska by building a 211-mile road to connect the remote mining site with another roadway, reversing a block on the project put in place under Joe Biden due to environmental concerns. But Trump doesn’t seem to care about such things. “This is something that should have been long operating and making billions of dollars for our country and supplying a lot of energy and minerals and everything else that we are talking about,” the president said when he issued the executive order, with Doug Burgum, the secretary of the Interior, hovering nearby. For years, the TMQ stock traded for less than $1 a share, but after the November election it crept up over the $1 mark. Following Monday’s announcement, the stock exploded, more than tripling to nearly $8 a share before settling around $6.50 at the end of trading on Tuesday. Needless to say, this got the attention of my trader friend, who noticed that some 42 million TMQ shares had been acquired on Monday for around $2 a share—an investment of some $84 million in an obscure stock that typically trades around 400,000 shares a day. At the moment, those 42 million shares are worth around $280 million—a cool profit of around $200 million. “Someone got very lucky,” he wrote. Normally, of course, the S.E.C. would open an investigation into who knew what and when. But Trump’s regulators don’t appear to be keen on investigating these lucky duckies.

And now, the main event…

Should Zaz Kiss Off the Ellisons?

To defend against a Paramount Skydance takeover, David Zaslav will need to prove that splitting up Warner Bros. Discovery will be more valuable for shareholders than selling everything to the Ellisons. According to analysts, he’s got a good case.

William D. Cohan

If David Zaslav has any hope of keeping Warner Bros. Discovery out of the maws of David Ellison and Paramount Skydance, he’s going to have to make a cogent and effective argument that, in the long run, WBD shareholders will be better off with the breakup plan that he set in motion in June, and which is expected to become effective by next April. He’s no doubt got bankers at Goldman Sachs working overtime putting together the deck, along with backup Excel spreadsheets, to make that very point—if and when the Ellisons get around to coughing up a bid for all of WBD. The New York Post is reporting that the Ellisons have asked “major private equity firms,” such as Apollo, to join their WBD bid, should there be one.

Meanwhile, the widely respected Bank of America research analyst Jessica Reif Ehrlich has just issued a research report articulating the Zaz case. According to Jessica’s analysis, a WBD split into Streaming and Studios, under Zaz, and Discovery Global, under Gunnar Wiedenfels, would create more shareholder value than selling out to the Ellisons and PSKY for something like $22 to $24 a share, to take CNBC analyst David Faber’s predicted range. I’ve known Ehrlich since we worked together at Merrill Lynch in the late ’90s, before BofA swallowed up the investment bank during the 2008 financial crisis. In her report, she predicted a split WBD could generate $30 a share for WBD shareholders, materially in excess of what the Ellisons are likely to bid. Furthermore, she argued that the stand-alone, relatively debt-free Streaming and Studios business would generate “a bidding war amongst potential buyers” and fetch a price of some 20x EBITDA, or perhaps adjusted EBITDA (it’s not clear—she references only the business’s “assets”), justifying the $30-plus-per-share valuation for WBD if the Zaz Plan comes to fruition. After all, she continued, there should be “significant demand” for Zaz’s Streaming and Studios business once it is “unburdened by WBD’s linear assets and significant debt load.” Perhaps more provocatively, Ehrlich argued that Discovery Global, the parent company that would house all of WBD’s linear TV businesses, is also being underappreciated by the market. Indeed, she posited that Gunnar’s business could increase in value over time, as a roll-up vehicle for a bunch of European linear TV companies—especially now that Zaz has diversified WBD’s assets internationally (buying rights to the French Open, creating an alliance with Globo in Brazil, etcetera). To that end, Ehrlich suggested that any one of ITV, RTL Group, ProSieben, Télévision Française, or M6 Métropole Télévision could be good candidates for Gunnar. All have market caps of roughly $5 billion or less—several of them are sub-$2 billion—and therefore, she thought, could make fine acquisition targets for Discovery Global. “We believe the European linear market is better positioned than the U.S.,” she wrote. “Rampant cord-cutting has impaired the U.S. linear TV ecosystem and will likely continue to do so.”

The Deleveraging Bump

I have to give Jessica kudos for this idea. So far, the conventional wisdom has been that Global Networks will end up combining with Versant, rather than rolling up the European linear TV landscape. “Consolidating this market could be accretive to the overall growth rate of Discovery Global,” Ehrlich continued. “Additionally, there is a clear opportunity to recognize synergies on the cost side through consolidation of overhead, advertising sales forces, affiliate sales, real estate footprint, etcetera.” Jessica also floated the idea that Gunnar could sell some of Discovery Global’s assets, such as CNN, or TVN in Poland.

Ehrlich certainly isn’t the first to suggest that Discovery Global could be run solely to generate free cashflow in order to pay down what will likely be a large portion of the $30 billion of WBD’s net debt that will stay with Discovery Global. After all, there would no longer be any need to funnel free cash to Studios and Streaming. More specifically, she proposed that Discovery Global’s 20 percent stake in Zaz’s business—that’s part of the split-up plan—could subsequently be monetized for $6 billion in 2026, and used to pay down what she estimates is $13 billion of net debt left on the Discovery Global business. (I suspect that $13 billion is low, but we’ll see.) In any event, Ehrlich figures Discovery Global will be 4x leveraged at the start—four times as much debt as adjusted EBITDA—which could be reduced to 2.1x leverage by the end of 2027. “Deleveraging can drive value for Discovery Global,” she wrote. Ehrlich’s grab bag of options also included the possibility of selling Discovery Global to a private equity firm, as many have suggested, in the way that TPG bought DirecTV from AT&T and made a fortune. She dismissed this as “unlikely,” however, since she figures Zaz & Co. have already run WBD for cash (which is true) in order to significantly reduce the initial $55 billion debt burden, so there may not be much low-hanging fruit left for private equity. There probably still is, to be honest, but Ehrlich is directionally correct. While she was up and rolling, Ehrlich even suggested that Gunnar buy a broadcast network, arguing that they are enjoying “a renaissance”—are they?—and that the lack of one at Discovery Global is “a glaring hole” in its asset portfolio. I’m not exactly sure which network might be available to Gunnar, but maybe Bob Iger would consider parting with ABC, as he once suggested during that infamous CNBC interview in Sun Valley. In any case, Ehrlich wrote that “these networks can serve as anchors for the linear businesses to support affiliate rates and advertising as a mitigator against ongoing secular headwinds from cord-cutting.”

Shareholder Limbo

Anyway, Ehrlich is not alone in thinking a split WBD could be a better deal for shareholders than the potential PSKY offer. I recently had a lovely email exchange on the topic with Wells Fargo analyst Steven Cahall, who suggested that if an Apple or Netflix were seriously interested in Zaz’s Streaming and Studios business, they could make an offer now, presplit, and agree to take some of WBD’s debt—potentially leaving Gunnar with a bunch of cash to pay off the remaining WBD debt, thereby giving shareholders a premium to whatever the Ellisons are thinking of offering.

For now, at least, WBD shareholders remain in a state of limbo. The good news for them, though, is that the Journal leak caused the WBD stock to run up some 60 percent in the days after. I think the delay works in their favor in another way, too, especially if Zaz and Gunnar want to remain independent: If Jessica is right that the WBD split-up plan will generate $30 per share in value, which is more than the $25 per share that Zaz is reportedly demanding for all of the company from any suitor—that’s not confirmed by me, by the way—and more than the $22 to $24 per share that the Ellisons are supposedly contemplating, that’s the more lucrative way to go for WBD shareholders, assuming Zaz and Goldman can make that case to them and to the board of directors. In any case, the ongoing delay from the Ellisons makes it seem increasingly possible that Jessica is right—that “a split is still the most likely outcome.”

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